Federal Reserve Chairman Jerome Powell stated that the central bank of the United States holds the view that there is currently no reason for it to rush into making decisions on adjusting interest rates.
The mentioned statement by Mr. Powell indicates that Fed officials will be patient before continuing to lower borrowing costs. On February 11, the head of the central bank of the United States told the Senate Banking committee that the current policy stance of the US financial regulator is significantly less restrictive compared to its previous configuration. Also in the relevant context, he stated that the economic system of the United States continues to be strong. According to him, the Fed currently does not need to be in a hurry to adjust its policy stance.
Jerome Powell noted that reducing policy restraint too quickly or too much could hinder progress in the fight against inflation. At the same time, he underlined that too slow or too little implementation of the relevant process could unduly weaken economic activity and employment.
After the testimony of the Fed Chairman, Treasury bond yields remained higher on the day while stock prices fluctuated. Traders mostly left unchanged their expectations regarding the dynamic of interest rates in the United States in the current year. In this case, a cut is not fully priced until September, and less than two lowerings are priced for all of 2025.
Jerome Powell’s statements, which were made on Tuesday, largely echoed his comments after the Fed decided in January to keep the key policy rate unchanged.
It is worth noting that the Federal Open Market Committee has lowered the cost of borrowing at each of its last three monetary policy meetings in 2024.
Jerome Powell and other officials at the central bank of the United States have signaled that they are likely to keep interest rates at the same level until there is a move forward as part of further progress in combating inflation. The Fed is also currently pursuing a kind of wait-and-see policy. In this case, it is implied that the US financial regulator prefers to wait for exactly what measures will be realized as part of the materialization of the economic concept of the administration of the President of the United States, Donald Trump, before taking any action.
The US labor market continues to be sound. Fed officials argue that against the background of the mentioned state of affairs, they have the opportunity to be patient as part of their approach to further cutting interest rates.
On Tuesday, Jerome Powell described the current situation in the US labor market as broadly in balance. He also noted that this situation is not a source of significant inflationary pressure.
Responding to a question about whether a soft landing scenario is currently being implemented in the space of the United States economic system, Jerome Powell said that it was not for him to say. It’s worth clarifying that a soft landing is a term that means lowering inflation to the target without significantly damaging the labor market.
Recent data suggests that the US labor market is slowing down, but at the same time remains solid. In January, employers added 143,000 jobs in the United States. The unemployment rate dropped to 4% last month.
On Tuesday, Jerome Powell also said that inflation expectations appear to remain well-anchored.
At the same time, the economic prospects of the United States are currently very uncertain. In this context, it is worth mentioning Donald Trump’s decision to ramp up tariffs on goods imported from the United States. Washington also stated threats of additional duties on products shipped from Mexico and Canada. Moreover, a factor impacting economic uncertainty is a promised immigration crackdown. Experts warn that the mentioned measures of the Donald Trump administration may provoke an acceleration of inflation. Implementing such a scenario will mean the formation of a source of weight on economic growth or constrict the number of available workers. For the Fed, this means policy implications.
